It is no secret that the larger companies with big budgets
and teams of lawyers often lead the way over smaller companies when it comes to
risk management and safety issues. Still,
smaller companies can learn by watching the behaviors of the large companies in
their trade group. This blog is designed to share with you some of what the big
boys already know when it comes to insurance certificates.
Most small contractor companies understand the need to
obtain certificates of insurance to prove that their subcontractors are insured. But what often gets lost is a clear
understanding of just why you need that certificate and how your certificate
processes might impact your company’s risk profile.
If I were to randomly survey the small contractors that call
our office to request an insurance certificate on one of our clients, and ask
them why they need this certificate, the lion’s share of them would say that
they need it for their insurance company when their policies are audited. And
while I understand that this is the most pressing issue; you don’t want to have
to pay for insurance on your subcontractors if you don’t have to; this mindset
completely overlooks the risk management component of this process. In fact, the real reason that you want a
certificate of insurance is to make sure that you are not taking on the risks
of an uninsured subcontractor on your job site. Look at it this way; you’ve put a lot of
thought, time and care into your insurance protection. Do you want to let an
uninsured subcontractor put all of that in jeopardy?
Focus now on the risk management side of this equation. You are relying on this certificate of
insurance to protect your company from dangerous or uninsured
subcontractors. With that in mind, take
a look at this short list of issues to keep in mind regarding the insurance
certificates that you request from your subs.
Make your certificate
request to the insurance agent, not the subcontractor. Several years ago it was reported that people
were offering blank and/or fraudulently completed certificates of insurance for
sale on ebay. If your uninsured
subcontractor wants to find a way to fake a certificate of insurance, it is not
going to be that difficult to do. So, to
help insulate your process from this risk, ask your subcontractor for the contact
information for his or her insurance agent and then contact the insurance agent
directly to request the certificate.
Carefully review the
certificate information. So many
contractors simply file away certificates of insurance without even glancing at
them. This is a dangerous practice. You should take a minute to check the names
of the insurance companies listed as providing coverage. Do they look legitimate? Are they names that you recognize? Now take a close look at the policy effective
and expiration dates. If a policy will
be expiring soon, especially if the expiration date is before you expect that
the subcontractor will be finished at your job site, then you will need to get
another certificate, one that shows that the policies were renewed. Last of all, check the limits of coverage shown
for each policy. You want to be sure
that your sub has limits high enough to keep your insurance from having to
respond to a large loss.
Remember, with an
insurance certificate you are looking at a snapshot in time. Keep in mind that any information shown on
the insurance certificate is just a record of the coverage in place on the day
that the certificate was created. If
your sub fails pay his next insurance bill then he could be working on your job
site with cancelled coverage, exposing your company to a huge unknown risk of
loss. And don’t be fooled by the idea
that you will receive a notice of cancellation if your sub gets behind on his
insurance payments. The ugly truth is
that most insurance companies do not even want to see copies of certificates
issued by their agents and they have no intention of letting you know if a
policy is cancelled. The truth is, they
couldn’t notify you of a cancellation, even if they wanted to as they have no
record of the certificate in their files.
The Additional
Insured option provides better security for you. The larger contractors have taken this route
and small contractors who care about their risk management should consider it
as well. In addition to asking for a certificate of
insurance from your subcontractors, you might also consider asking that your
company be added as an additional insured on the subcontractor’s policies. Some companies charge for this but generally
the charge will be pretty low. As an
additional insured, you will now receive an endorsement to the policy from the
insurance company, so you know that they know about you. This also solves the snapshot problem as you hold
a position on the sub’s policy that entitles you to receive cancellation
notices or notices of nonrenewal should any of those be triggered.
Don’t fall into the trap of focusing only on the audit
requirement of an insurance certificate while forgetting that you need
protection from your subcontractors and their behavior on your job site. Don’t let your certificate of insurance
procedures become a simple rule following process, instead take action to be
certain that your company is getting the protection that it needs from the
risks of uninsured subcontractors.
At Clinard
Insurance Group, located in lovely Winston Salem, NC, we want all insurance
buyers to be informed consumers. We have
different types of contractor
insurance programs, from landscapers
insurance, plumbers
insurance, electricians
insurance to painters
insurance programs and many others.
We insure contractors in North Carolina, South Carolina, Georgia,
Tennessee and Virginia. Should you need
any help with your commercial insurance policies, I hope that you will feel
free to call us, toll free, at 877-687-7557.
